Six employees work at Lilly‚??s drug authentication lab in Indianapolis, part of the drug maker‚??s stepped-up efforts to combat counterfeiting. / Eli Lilly and Co.

by Jeff Swiatek, The Indianapolis Star

by Jeff Swiatek, The Indianapolis Star

INDIANAPOLIS -- The drug fakery came to the attention of Eli Lilly and Co. in 2007, when a British packager noticed upside-down batch numbers on blister packs of Zyprexa, a popular medicine to treat schizophrenia.

Lilly confirmed the foil packs held illegal knockoffs, filled with impurities and containing only 55 to 80 percent of the active ingredient in real Zyprexa. The hunt was on for the counterfeiter.

British investigators soon found him: Kevin Xu, a then 37-year-old Chinese national who was shipping the fake Zyprexa to Brussels in drums labeled "carmel colouring." From there, the drugs were moved to Great Britain by a distributor who resold them as legitimate French stock.

Arrested and put on trial in the United States in 2008, Xu received a six-year prison term for misbranding and trafficking in counterfeit drugs.

Xu's case ranks as one of the most sophisticated illegal drug operations that Lilly's anti-counterfeiting team has helped crack.

"His packaging was very good. You had a guy with a lot of panache, operating on an international scale," said Michael Russo, Lilly's director of global security for product and asset protection.

Lilly has been engaged in anti-counterfeiting efforts for more than 10 years, but thanks to operators like Xu, the Indianapolis drug maker has had to up its game. The best counterfeiters can reproduce Lilly's packaging down to the tiniest of lettering and even product bar codes. They can duplicate the precise shapes and color shades of pills.

Lilly's latest move to counter counterfeiters is it's most complex and expensive yet: finding a way to stamp unique codes and serial numbers on every drug package it sells worldwide, so each shipment can be tracked and verified as genuine as it moves from plant to patient. The hope is to weed counterfeit product out of legitimate drug distribution channels, since counterfeiters won't know the right serial numbers to stamp on their fake goods.

The serialization program will cost Lilly $110 million, with most of that spent over the next two years.

Lilly already was spending millions on anti-counterfeiting. The company keeps a team of seven drug investigators posted on three continents and has built a drug authentication lab in Indianapolis that tests hundreds of suspect drugs a year using a staff of six chemists and others.

Lilly has made anti-counterfeiting a priority under its current president, chairman and CEO John Lechleiter. It was one of four founding members of the Alliance for Safe Online Pharmacies, started in 2009 to combat the 50,000 online pharmacies that peddle illicit drugs without prescriptions. The shady world of online pharmacies gives counterfeiters easy entree to patients and enables them to rack up worldwide profits that some estimates put as high as $200 billion a year - nine times the annual sales of Eli Lilly.

Lilly "is driving the conversation to get people to pay attention to illegal drug sales," said Libby Baney, executive director of the alliance, based in Washington, D.C.

For drug companies, the threat from counterfeiting is obvious: Their brand names appear on a product that often doesn't even deserve to be called medicine. The active ingredient is often missing, replaced by medically useless or harmful fillers like talcum powder or brick dust.

"That's very disturbing to us and has really emboldened the company's commitment" to fight counterfeiting, Russo said.

Some of the more sophisticated anti-counterfeiting techniques Lilly uses are color-shifting blister packs, hard-to-duplicate printing on packages, and unusual pill colors and shapes, like its mustard-colored, ovalish-shaped Cialis pills. Like other companies, Lilly also uses covert package protections that its officials won't talk about.

The drive to put serial numbers on drugs is happening because governments are starting to require it. Their incentive is not only protecting patients but financial, too: Government-run health systems don't want to pay for fake drugs that make their way into pharmacies and the hands of patients.

The coming government mandates mean that more than half of the drugs Lilly sells worldwide will be required to contain product serial numbers by 2018, said Bryan Orton, Lilly's director of serialization and product protection. "It's not necessarily something pharma companies are asking to do," he said, "but we certainly see the value in it."

Serialization is not cheap. It requires revamping Lilly's 40 packaging lines globally to install computer-controlled, high-speed stamping equipment. The custom machinery is not exactly off-the-shelf stuff, so Lilly had to design it and test it on a mock packaging line built for $5 million in a warehouse near Indianapolis International Airport.

Lilly officials must design their serialization system to mesh with the different standards outlined by European and U.S. drug regulators and also to protect patient privacy, which is a must under federal law.

How drug companies will protect patient privacy while they are stamping unique serial numbers on individual drug packs is something that has Larry Ponemon, chairman and founder of the Michigan-based Ponemon Institute, which studies privacy issues, concerned.

"There's that creepiness factor - this package knows me," Ponemon said. "This has the potential to create some privacy issues down the road."

Orton said he's confident that serial numbers can be put on drug packages without breaching patient privacy.

Even before serial numbers become commonplace, Lilly officials and others think that counterfeiters are on the run.

One reason: Internet search engines such as Google and Bing - under government legal pressure in some cases - have hindered illegal online pharmacies from advertising online, while credit-card companies have blocked their ability to do credit-card transactions, Baney said.

There is a problem: New online sales sites keep popping up under new names.

John Horton, president of LegitScript, a Portland, Ore., company that rates online pharmacies for their credibility and legitimacy, said most of the 600 to 700 website registrars in the world refuse to grant web names to what he calls "rogue" pharmacies. So most rogue pharmacies now must rely on only a dozen or so such registrars to give them website names, he said.

"The weakness of rogue Internet pharmacies," Horton said, "is they need to be found."

As more of the illegal Internet pharmacies find the web an unwelcome place to do business, Horton predicts the world of counterfeiters will be forced to turn to an old-fashioned way to market their product directly to consumers: telephones.

William Reid, senior director of Lilly's global anti-counterfeiting operations, agrees that counterfeiters are being cornered. He credits the drug industry's "holistic strategy" of fighting counterfeiters on several fronts at once.

"We know the counterfeiters are out there ... and we'll be as vigilant as they are. I'm optimistic ... we will get to a place where we will beat back the counterfeiters."

But there is at least one very skilled counterfeiter back on the streets. Xu, who counterfeited Zyprexa and more than 20 other name-brand drugs from his Chinese factory, recently was released from a U.S. prison after serving his sentence.

"I don't know where he is," Russo said of his old nemesis. "I would be worried his future actions might mimic his past."